Investing - know when to hold, know when to fold

It's financial year closing season for many companies in Singapore. This means an influx of financial statements from my various local investments. And one particular stock's statement always stands out for me - because I made a killing on it..... on paper at least, for a while.

I bought the stock more than 10 years ago, at around $2 per stock.

For a couple of years, I was collecting a really pretty annual dividend on it, at around 10%.

And the share price was rising.

Well done me! Or so I thought.

The plan was always to keep collecting the dividend, for about 10 years, until it paid itself off, and then sell the shares off. So I stuck to this plan, even when the share price more than doubled and it was so tempting to sell. And I stuck to this plan even more doggedly, when the share price plunged to nearly half of what I paid. And I continued sticking to the plan, even when the company cut dividends and messed with my plan of having the dividends pay off for the original investment cost.

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In the world of decision-making, the concept of sunk costs plays a significant role, particularly in investing and business endeavours. They represent something (money, time, or effort), that has already been spent and cannot be recovered. However, the challenge arises when individuals allow these sunk costs to influence their future decisions and create suboptimal outcomes.

Knowing when to hold on to investments requires a balanced approach that considers both past investments and future prospects. Don't let sunk costs dictate future decisions - instead, conduct thorough research and analysis to work out the intrinsic value and growth potential of the investment.

Equally important is knowing when to fold. This requires the ability to recognize warning signs of deteriorating prospects and the willingness to cut losses. Some strategies to help overcome sunk cost mentality include setting clear exit criteria, adapting to changing circumstances, and protecting original capital. While accepting sunk costs can be challenging and emotionally painful, it's essential for moving forward and achieving better overall outcomes.

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Fast forward to today. I'm now trying to figure out whether (and when) to sell the stocks. A small part of me is still hopeful for the share price to rebound though.

Talk about sunk costs. I should probably take my own advice, sell soon, and find something better to invest in.